Good morning. I'm Jason Goldberg, and welcome to day two of Barclays' twenty-second Annual Global Financial Services Conference. Thank you for joining us. We have a full slate of large- cap banks. We got eleven in a row, all in this room, with the exception of Bank of America at lunch, which will be next door. Very pleased to have kind of kicking off day two is Wells Fargo, a company that obviously plays in many aspects of the financial services industry. From the company, I'm very happy to welcome back Mike Santomassimo, the Chief Financial Officer. Mike, good morning!
Thanks. Thanks for having me. I can't imagine you doing 11 in a row, but good luck.
Appreciate it. Maybe we could put up the first ARS question we've been asking all the companies this question. We'll tally them up at the end. But Mike, maybe we start just big picture. Obviously, Wells Fargo serves a broad array of consumers, high-net-worth individuals, commercial, institutional investors. Maybe just tell me kind of what you're hearing and seeing across segments as you kind of grapple with a slowing economy, elevated inflation, economic uncertainty, declining rates potentially next week, and the like.
Yeah, I mean, there's a lot in there. But I think, you know, the short answer is, I think most people are still doing pretty well, whether it's on the consumer side or the commercial side. And when you unpick that on the consumer side, you know, you're continuing to see the trend now that we've talked about for a while, which is, you know, folks on the lower side of the income or wealth spectrum are struggling more. You've seen the cumulative impact of inflation largely get offset by, you know, wage growth, but spending is up, and you're starting to see, you know, higher delinquencies in that market, in that cohort.
Not a huge piece of our business, but nonetheless, you're seeing some stress there, and that's been pretty consistent now for a while, and as you go up the income and wealth spectrums, you know, people are doing quite well. They still have more liquidity than they did pre-COVID. They have, you know, they get the benefit of, you know, their investments doing quite well, despite, you know, volatility that happens from time to time, so on the consumer side, pretty good, then when you look through our credit portfolios, you know, home lending's fine. Our auto business, we tightened credit a couple of years ago, so you're seeing loss rates come down there, and you know, I think in the card business, you're seeing the confluence of really two things.
One is that slow deterioration coming off the lows of COVID, which is what we expected to happen, and then the maturation of the new vintages of product that we put on now for the last few years, and that's really behaving exactly as we thought. On the commercial side, same thing. You know, most customers are still doing pretty well. They're being prudent about borrowing, that's helping. But, you know, you've definitely seen margin compression, you've seen, you know, the impact of, you know, higher wages impact, you know, companies. But overall, I think people are doing quite well. You know, from an activity level, you know, what we're seeing, it's still pretty good in terms of the debit, the credit card spend.
You're definitely seeing slowing growth rates, you know, year -over- year, you know, as you go through the year, but that's kind of expected, right? You've seen such a big increase in spend over the last few years. You're still seeing an increase year-on-year, but those growth rates move around a little bit. I wouldn't read too much into sort of the categories of spend underneath that because those things move around quite a bit. But I do think, you know, overall, it still feels pretty constructive, I think, when you look at the overall activity levels and how credit's performing.
Helpful. I love running through the financials with you, but maybe we could start in kind of some of the kind of bigger picture strategic areas of questions we get on Wells. Let me just start with kind of, you know, retail banking. You know, since the asset cap, branch counts down by more than 25%, Bank of America, JP Morgan, are obviously now expanding more aggressively into new markets, you know, somewhere you're kind of a leader in. Can you just talk to your retail banking strategy currently in the current landscape, and, you know, how does this change when the asset cap gets removed?
Yeah, well, look, it's a first of all, it's a great business, and, you know, I think we're very lucky to have the mix of businesses that we have there, and I think from a branch perspective, we're still number two in terms of the number of branches , you know, across the country. I think if you were to widen your time horizon there just a little bit, and you look at what happened over, you know, the last 10 years, you know, us and some of our peers are down about the same. You know, one of them, as you mentioned, has been adding some de novo, so they're down a little bit less, but I think you've seen trends that are a little bit more comparable.
You know, we were probably just a little bit later in closing or reducing some of those branches. But I think it's probably a little bit more comparable than you might think over that time horizon. You know, we're in 24, 25 of the top 30 MSAs. You know, we're investing in that footprint that we have across those branches. And I think, you know, we should continue to start to see some more growth come out of that as we go. And I think, you know, that's one of the businesses that, to some degree, was impacted by some of the sales practices work that we had to do.
And now that that's behind us, I think, you know, we've been investing in the footprint, we've been investing in the people, we've been... And we're starting to see some of the benefits of that come through the results.
And then, I guess, in the last three years or so, Wells has completely revamped, you know, its credit card business. I think nine new cards. Just where are you kind of in that product build-out, and how should we think about its contribution, its, you know, profitability, you know, as the portfolio matures?
Yeah, we're, you know, we're really excited about the, the opportunity that's in that business. And if you, you know, again, rewind back to, you know, the end of 2018 , we brought a new team in to run that business, and we've basically changed everything in that business. How we operate it, the line assignment process, the operations, the service, you know, and we've systematically refreshed the whole portfolio. As you said, we've got about nine products. We started launching them three years ago, so we're very much still in that maturation phase of those new vintages coming on. You know, a new account takes two to three years to really mature and see the profitability, and so you've started to see those come on, you know, two and a half to three years.
So we're still in the early phases of kind of the revamp of that business, and it really hasn't contributed much yet, given the upfront costs, the accounting around the loan loss allowance. And so I think, you know, as we start to see that mature, I think you'll see it more meaningfully contribute to the bottom line, and I think we're pretty excited about that. You know, from a product lineup point of view, you know, we've got at least a couple more products in the hopper. At some point, you know, we'll look to launch.
But I think, you know, we're mostly focused on making sure the things we have launched are operating well and continuing to improve, you know, the underlying service that's there. And I think we've got a long runway to continue to grow that business.
I guess on the corporate and investment bank, you know, we had a lot of new talent over the last several years, new co-CEO. Trading has clearly kind of become a bigger portion of the revenue stream. Just where are you on that journey, and kind of what are your aspirations there?
Yeah, I mean, look, we've had a corporate investment bank for a long time. We started talking about it more clearly back in early 2021, when we kind of, you know, changed the segment reporting that we have. And that was both for people outside the company and people inside the company, to show the importance of that business. And when you look at, you know, historically, we've had the exposure, we've had the lending, we've had the relationships with clients, we just never really monetized it, you know, through in the way that we should have through kind of the fee generation there. And so when you look at each of the components of the corporate investment bank, you've got investment banking.
You know, we hired, Tim O'Hara, who runs that business, for our co-CEOs. And we've added, you know, dozens of new senior bankers over the last, two and a half to three years in that business. I think, you know, it takes time for people to come up to kind of full productivity, and but we're starting to see some green shoots there. We've seen a little bit of market share growth over the last, year or so, so I'd say it's still pretty early in terms of, seeing that come through. The market's got to cooperate a little bit as well. We got to see more transaction activity, more equity capital markets activity, but nonetheless, I think we're positioning ourselves quite well.
We're very pleased with, like, the type of people we're getting and the ability to attract talent to the platform. I think clients have been very receptive to doing more with us, you know, as we get the right people in the right seats. So I'd say it's a little bit more of the same in terms of our ability to continue just you know, systematically invest in that business, and I think you'll start to see some of those results over time. On the market side of the business, that was one of the businesses that was most constrained by the asset cap. You know, during COVID, we had to reduce our capital markets balance sheet by quite a bit during that to kind of manage through that time period.
But along the way, since then, we've just been, you know, very much under the radar, sort of investing in people, upgrading talent, investing in some of the technology and some of our e-trading capabilities. And focused, you know, first on some of the, you know, kind of balance sheet, you know, friendly products like FX. I think you're starting to see that come through, in the results there. We've talked about that in other forums quite a bit. And I think, you know, we're pleased with what we've seen in that business now over the last, you know, probably six quarters, where we've seen pretty good, solid performance there, and I think we've got to do that over a much longer time period for it to be, you know, sustainable.
But I think we're happy with what we're seeing there. We'll continue to focus on, you know, our U.S.-based clients. You know, we're not trying to be everything to everybody, you know, in that business, but I think as we go over a long period of time, I think we'll be able to do more. As we have more balance sheet flexibility, we'll be able to do more financing trades, which also brings other activity with it. But I think that team has done quite a bit , you know, to kind of grow the fees there. And what I'm most happy and most pleased about in that business, as we've done that over the last couple of years, we haven't really grown our market risk RWA as much, and so we're not adding a ton of risk.
We're leveraging the balance sheet that we've got out across those client base, and I think we're starting to see really good sustained performance now over the last six quarters. And then we've got our commercial real estate business, where, you know, we've been a leader in that business for a long time. It's still a very important business to us. You know, and I'm sure we'll talk about some of the office portfolio at some point, but I think that's an important business, and we'll, you know, it's important to our clients, and we're very committed to it.
And then wealth management business, probably the most adversely impacted by the asset cap. Although it appears like advisor retention's improved of late and your ability to serve the independent advising channel. Just how are you thinking about that business?
Yeah. I would just say it wasn't directly impacted by the asset cap. It was impacted by the reputational, you know, questions that were out there in the business. And you know, across the advisor. And what that did, as you mentioned, is it sort of contributed to advisors leaving, you know, the platform over you know, a multi-year period. And I think you know, one of the most important things that the team has focused on over the last you know, four years, is to stem that attrition, and we've done that. So we feel really good. The tide has turned, you know, we're seeing good recruiting.
We went from industry-leading attrition to, you know, what we think is sort of industry-leading, you know, retention in terms of the overall platform. You know, we get a look at all the big advisor teams that move across the industry at this point. We've got a great investment platform. We've got, you know, the banking and lending capabilities that continue to get better, and so I think, you know, we feel good about sort of the momentum that has sort of shifted in that business, but I'd say there's really three parts to it. One is the core advisor platform, which is kind of what I've talked about there, which is, you know, the 12,000-ish advisors, you know, that contribute there.
We also have the ability to serve independent advisors, so I think we're unique in that sense. And when you look at the big wealth management players, that's the fastest-growing part of the wealth management business in terms of number of advisors. I t's early, but we're starting to see some, you know, momentum in bringing people on to that platform from other firms. And the last piece is really going after the opportunity for the affluent client base in our retail branch system, which I'd say is almost an untapped kind of market for us. We have a couple thousand advisors that sit across the branch system. We've added to that quite a bit over the last couple of years.
We've launched some products under the umbrella of what we call Wells Fargo Premier, and we're continuing to build out that offering. So I think across those three channels, I think, you know, we feel like the opportunity in the wealth business is as good as anybody's in terms of our ability to go after it.
Helpful. I guess, now turning to the financials. So I guess the NII guide at start of the year was down 7% to 9%. Kind of pointed to the worst range in July, owing to increased commercial and sweep deposits, and weaker-than-expected loan growth. We're gonna kind of maybe unpack that, but maybe first, just on net interest income, or ask right off the bat, any update to the 2024 guidance of down 8% to 9%?
No update, no change to it. You know, I think as we looked at the guidance we gave in the beginning of the year, we gave what we thought was a realistic range. We're still in that range, right? Obviously, as you go through the year, things move around quite a bit, you know, as we've seen over the last few years. Obviously, your expectations on rates have changed, loan growth has changed, you know, deposit levels are sort of, you know, moving around. I think, you know, things change throughout the year, but we're still no change to the guidance.
Got it. And then maybe on a couple questions on deposits. You know, you talked about the sweep deposit increase. It looks like you went to 5%, [00:14:24] went to 5%, Morgan Stanley, UBS, closer to 2%. I guess, why go all the way to 5%? H as it impacted balances at all? I know it's only one segment of these deposits, but is there concerns that you may have to spread across additional deposits?
Yeah. Well, let me talk about that specifically, then I'll give you some comments on the rest of the deposit base. You know, on this, this was a very targeted change for sweep deposits. So this is effectively mostly frictional cash that sits in advisory accounts. And we align those rates with money fund rates, so it's very specific to this product, not other products. You know, I can't speak to what others are doing, but I think, you know, as we went through the process, we decided to move it more aligned to money fund rates, and you know, we think that was the right thing to do.
When you look more broadly, though, and look at what's happening around deposits, you know, overall, deposits are performing quite well, you know, relative to where, you know, we would have expected potentially in the beginning of the year. We saw growth across each of the lines of business in the Q2 . You know, we've seen pretty good performance, stable-ish, you know, as we come into the Q3 , so not moving much. We've seen that cash sorting or the migration from non-interest-bearing to interest-bearing deposits slow quite materially as we've gone through the year. That's continuing. You know, we're not seeing pricing pressure on the consumer side.
You know, deposits on the commercial side are quite competitive, you know, as you go for the bigger operational deposits, but that's been the case now for years, and I think, you know, as we look to what happens, you know, next week, you know, I think we'll see deposit pricing start to adjust, you know, as rates come down, and I think we're still very confident that, you know, the most interest rate, or highest priced deposits, you know, will see quite high betas on the way down, across the commercial deposit base, and so, that's still the plan, and we expect that to happen as rates, whatever happens next week.
Got it, and then maybe, shifting gears to loan growth. You know, cards kind of been strong, but kind of seen weakness elsewhere, I think consistent with others. You know, any signs of improvement or signs of optimism, and do you think the Fed cut next week could maybe potentially be a catalyst?
Yeah, and I should have said in the last question, you know, when on the sweep deposits, you know, we made that change in June, the $350 million impact for the second half of the year. So you'll see the full impact of that, you know. coming to t he Q3, I know lots of people like to have something to put in their models, and so there's the only thing I'm going to give you. You know, when you look at loan growth, you know, it's not changing much, right? And, you know, we didn't expect much coming into the year, and we're definitely not seeing much, right, across the board. You've definitely seen some card growth come through, but that's offset in other places.
And so, you know, as we said in July, you know, we're not expecting , you know, much to happen in the second half of the year, and that's still the case. You know, I think, you know, whether assuming rates move next week, you know, I don't think that's a big catalyst by itself, right? I think you have to look at, you know, people are looking at uncertainty in the economy. They need to see some more confidence that this soft landing path is what's going to play out. I think you got, you know, election, you know, coming up, you know, in a few months or a couple of months.
I think there's a bunch of other factors that play into, you know, this confidence level that people are going to need to have in order to kind of be more of a catalyst to see loan growth. It'll come, but I don't think whatever happens next week will be, you know, the single thing that sort of changes the dynamics substantially.
If we could put up the next ARS question. I guess, you know, like putting all this together, you gave us a little bit of nugget, in terms of the $150 million full impact of the fee deposit in Q3. Obviously, interest rates are moving as well. We talked about loan growth. I guess, we kind of put all that together, you know, how should we think about the net interest income trajectory, you know, into next year?
Yeah, well, you know, as always, I'm not gonna really give you much about next year. We'll do that as we get into towards the end of the year. But, but I think the dynamics to think about are all the same, right? Like, what's gonna happen with overall deposits? How's that mix shift gonna, you know, play out, you know, across non-interest bearing and interest bearing? Now, we've seen, you know, those trends be, you know, positive, right? We've seen growth for the first time across all lines of business, you know, in the Q2, w e've seen that migration trend slow. So those are all, you know, net positives.
And then we're gonna get the benefit of asset repricing as we continue to see, you know, that come through in the securities portfolio as well. And so, as we've said, you know, the last couple of quarters, we expect, you know, that NII will trough at some point, you know, towards the end of the year. You know, we've got some headwinds and some tailwinds as we sort of look at, you know, rates coming down, and I think we'll give you more guidance on how that plays out for next year.
A very, very even distribution around.
Yeah. Well!
No change.
Yeah, that's like quite a normal distribution. Wow. That might be the first time ever.
I'll ask John where he voted later.
John's not allowed to vote.
I guess on the fee income side, certainly been a source of strength last six quarters of year-over-year growth. I think from some of the assets we talked earlier, obviously, market conditions have helped. Can you just walk through kind of some of the larger categories and what you're hearing and thinking?
Yeah. So, I mean, when you look at the fees, you know, the biggest item is still investment advisory fee line in our wealth business. Still very much in the near term, driven by what happens in the markets. So if you look at what's happening in the S&P, I think it's, you know, a little bit off of where it ended at the end of June, first of July. And as a reminder, most of our assets are priced in advance for the quarter. So for the Q4, whatever October first ends up is sort of where that drives a big part of the fees.
Now, one difference that you're seeing now, too, is as rates come down, you see the benefit of fixed income prices coming up. It does matter as well. So that'll give you a sense of how to model that fee line. And then when you start looking at, you know, investment banking, trading, you know, again, we'll see how the market sort of cooperates and how volatility persists through the year. But we've been quite pleased with what we've seen so far in our performance. Obviously, it's a different mix of businesses than some other people, but we're quite pleased with what we've seen there so far.
You know, and then the deposit fee line and some of the other fee lines don't move too much, and we're starting to see a little bit of benefit from, you know, the venture portfolio that changed. You know, over the last couple of years, we're seeing a lot of impairments, you know, that seems to have petered out and sort of the momentum shifting a little bit there as well, so we'll see how that plays out.
I guess on the expense front, you kind of got it up to $54 billion. Some of that was FDIC special assessment; we'll give you a pass. Some of that's revenue related; that's a good thing. Some of it was operating losses, I guess, higher than expected. I guess first, do you still feel good about the $54 billion? Then secondly, how do we think about operating losses looking out? I would have thought most of your issues would have been behind you by now.
Yeah. You know, no change to that guide either. So still the $54 billion. You know, like, I think on the operating losses, what we saw in the first half of the year was us working really hard to put some of the historical issues behind us. As we were talking earlier today, like, sometimes these things take much longer than you would expect. You know, some of them are very quite complicated, take a while to work through. But as you sort of crystallize these expenses, you know, generally, that means you're a little bit further along in the process. So that's a positive as well in some of this client remediation work that we were doing.
And you can see the breakdown of the operating losses in our Q4 for anybody that wants to dig into it a little bit more. And you know, I think we're gonna continue to work hard to put that stuff behind us, but that's all included in sort of the guide that we gave there. You know, and I think more broadly on just expenses, you know, we feel really good about the work that's been done over the last few years. We've driven a lot of efficiency across the place. We've reduced our headcount quite substantially, and we've been able to invest back into many of these businesses, which should help us over a much longer time period.
So, we come in every day, try to make that number better, get more efficient, improve service, and make sure that we're making the investments we need to make across the place.
And I guess maybe sticking with expenses, headcount is, I think, down 16 straight quarters as you kind of embark on continued efficiency initiatives. Yet, I think we'd agree your efficiency ratio is probably higher than you'd want. I mean, what else can be done to kind of get expenses or get efficiency ratio better? And just how are you kind of thinking about the 2025 budget?
Yeah, we're working on our budget now, and, you know, we go into this process with the same mindset that we've come to it over the last, you know, three or four or five years. And, you know, I think when you look across the company and you ask the operating committee members sort of how things are going and whether we're as efficient as we should be, nobody says yes and so there's still opportunity across just about every part of the company to continue to get more efficient. Some of that's headcount, some of that's automation, some of that's real estate, some of that's third-party expense.
You can go on, you know, so there is no one silver bullet that drives it across the place, but I think there's still a lot to do to continue to drive it. And that's the place we start the conversation every time. Okay, what are we doing to drive more efficiency? The more you do, the more you see, the more you know you kind of see the opportunity that's there. And so our mindset is still the same that it's been over the last number of years. And it's something, you know, we work really hard to kind of build this, like, into the way we operate the place every day.
Business reviews, budget process, sort of the way people are sort of evaluated, sort of, you know, how are we doing in terms of really driving down unit costs across much of the company? And I think we would continue to expect to see a lot of efficiency, and we would hopefully see that, you know, represent itself in the efficiency ratio over time. And so there's a lot still to do.
And then, I guess you touched on credit quality earlier, but, you know, charge-offs were up last quarter. You know, office and credit card appear to be playing a role in you and others. I think you were talking about lower credit card charge-offs for Q3 at one point. Is that still true? And just maybe talk about just credit quality, you know, more broadly.
Yeah. A s I mentioned earlier, you know, overall credit is doing quite well. You know, I'll come back to office in a second, but, you know, across the rest of the portfolio, it's working. You know, it's playing out quite well overall. You know, again, going through the portfolios, the home lending space is fine. You'd have to see a, you know, a really big correction in home prices and some big dynamic to change that. I mentioned the auto business earlier, continuing to see really good performance there from a loss perspective as we sort of tightened things a couple years ago. In the card portfolio, you're seeing the two, you know, the maturation, the new vintages, and deterioration coming together.
You know, the new vintages are performing exactly right on top of the models that we had. So we're not seeing any kind of distortions of any note there at all across the different products. We spent a lot of time looking at the different roll buckets and, you know, product by product, and I think that's performing where we thought. So overall, you know, consumer is feeling fine. We do expect the card charge-off rate still to come down in the Q3, as we mentioned, and then you'll get into some more normal seasonal patterns, likely, right?
You know, in terms of seeing, you know, some ups and downs throughout the year, you know, in that portfolio. On the commercial side, it really is a story about office when you talk about losses. The portfolio is big enough that you might have some idiosyncratic issues somewhere, you know, at any given point, but we're not seeing a lot of systematic stress come through in other parts of the portfolio. And so office is really that place. And as I've said, you know, for the last year or two now, you know, this is a long story that takes a while to play out.
So, you know, we would expect to have some losses as we look forward there and, you know, all within the confines of what we've been talking about and what we've modeled. But I think we, you know, it's going to take some time to work through, you know, that portfolio. And I think you can see that in most of the cities we all sort of travel to and live in, and, you know, older office buildings are doing much worse than newer office buildings.
Newer office buildings are actually, you know, you look in New York City, and you look at different parts of the city, they're almost fully leased, and older office buildings are the ones that are having the trouble. I think you see that stress pretty consistently across the country. It's not specific to certain cities. We feel good about the allowance that we have for that portfolio, you know, roughly 11% for the institutional office portfolio. And we'll continue to work through it with customers.
I guess maybe sticking with the credit theme, you touched on the allowance, but you know, you kind of built allowances over the last couple of years. We've seen more releases in the first part of this year. Maybe just talk to kind of what's driving that and just how we think about allowance going forward in the face of kind of rising unemployment, continuing office stress and the like?
Yeah, I mean, you know, the releases are quite small in the scheme of, you know, the allowance over the last couple quarters. But, when you look at the way we've thought about it, obviously, we've got, you know, multiple scenarios that we use to look at sort of the potential outcomes from an allowance perspective. We've had a pretty significant weighting on the downside scenarios for a while. I can't remember now when we didn't have that. And that's still very consistent. So you know, we're prepared for what could be more challenging environment. Now, we're all hopeful that the base case of this soft landing plays out, but we need to be prepared for other scenarios.
And that's underneath, that's embedded in the way we've thought about, you know, the allowance. And so we'll see as things go. You know, we haven't finished that process for this quarter, and we'll work through it each quarter. But I'd say our overall expectations that are underpinned through the allowance haven't moved that materially over the last couple quarters.
Got it. And then maybe on capital, you know, 14% dividend increase, $12 billion buyback in the first half of the year, definitely well received. 11% CET1, maybe a little bit closer now to your , I think, 9.8% revised target or new requirement. F irst , I guess the SCB came in probably higher than you expected. You know, does that kind of change anything? I think it had the biggest increase alone or so anything.
No, it doesn't change anything. First, we came into the year with a lot of excess capital, right? So, we feel good about our capital, capital position. You know, I think we, like the rest of the industry, you know, look at sort of the process of CCAR and the volatility that's embedded in there, and think there's probably opportunity to make that a little bit better of a process, right? I think when, you know, for us, when you look at the underlying, you know, drivers of the change in the SCB, you know, a good chunk of it's related to the way fees were modeled or the way, you know, pre-provision net revenue was modeled.
And so, you know, it's still a bit of a black box, and so unclear exactly what drove a lot of that, but it doesn't change our approach to managing capital. And as we said, at earnings, you know, around 11% is sort of where we'll manage.
We'll all get some more clarity in a couple hours, maybe. I don't know. Some, you know, on where capital requirements are going as part of Basel III. We'll see how that is. I'm as interested as anybody to see what is said. But, you know, we're happy with the buybacks we did in the first half, and as we said, you know, we would expect to do more in the second half, albeit at a slower pace than what we saw in the first half.
I guess, you mentioned it, but, you know, Fed Vice Chair Barr speaks at 10 A.M. I just allegedly next Thursday, get a 450-page re-proposal.
Half the size of the original.
So I guess it goes with the expectation that, capital inflation will be half of originally expected.
Uh, yeah I didn't put that together, but that's actually we'll see. Good.
I guess, just any thoughts in terms of, you know, how that plays out and, you know, how would the industry perceive... You know, initially this was expected to be, you know, really no increase to capital. They got to, like, a 20% increase, now maybe a 10% increase to capital requirements. Just, you know, any thoughts around that?
Look, we're all speculating until we actually hear what's gonna be in there. But, you know, based on what you hear in the press, you know, we would expect some changes around operational risk. We would expect some changes around credit risk, RWAs, all positive in terms of coming down. Unclear what to expect from a market risk point of view, and how that sort of comes together. You know, the details matter, so, you know, I'd be a little reticent to say how people are gonna react to it until you actually see some of the details behind it.
But I think nonetheless, you know, for somebody in our position, you know, lower operational risk, lower credit RWAs sort of have a meaningful impact on sort of the increase that we expected to see as part of the proposal. So that'll be a positive. Exactly, though, how it'll all play out, I think we're all gonna find out. I know some of you, particularly in the first row here, will be reading every 450 pages of it. So, I think we gotta wait until we see that.
Fair enough. We'll come back to you on that. Asset cap. I guess it's been five years since Charlie started as CEO, and you know, since day one, talked about operational compliance risk. Although it does feel like the tone around kind of it sounded a bit, maybe more upbeat this year, although obviously, the asset cap remains in place. I know it's a regulatory decision, but just, you know, any update you can provide? And we can put up the next ARS question while Mike answers that.
Yeah, you know, I think, look, I understand why, you know, people want more information. Unfortunately, it's one of those things we can't provide too much clarity on. But what I would point to is just some language that, you know, we've sort of evolved over time, you know, during mostly our earnings calls and other forums. But look, you know, we started with, you know, four or five years ago, really having good clarity on what we needed to do. We, you know, were seeing good, significant progress over that time period.
And now you fast-forward, you know, to what Charlie has been saying, you know, more recently, we're seeing the benefit of the changes we've made and sort of the way the place is operating, you know, in the operating metrics. And so we've made a lot of progress, you know, throughout that time period. Ultimately, it's gonna be up to the to the Fed to sort of decide, you know, when the asset cap's lifted. But our focus is really just across all of the regulatory work, is to, you know, get the work done in a really high-quality way.
That's what we do, and that's what we've done every week, you know, that we've all been here, you know, come in and figure out, like, how to make sure that we're making the progress we need to make. We feel really good about it. We're confident we'll get it all done. Ultimately, the timing will be up to the Fed.
I think this is the seventeenth in a row, we ask the audience this question, and they've yet to get it right, or I shouldn't say that. Number five always seems to be the right answer, but I want to ask you to opine. But this, I guess this is probably the most optimistic we've seen it. We'll leave it at that. I guess if we can go to the next ARS question and Mike, maybe tying together a lot that we talked about today. Just, you know, maybe talk about, you know, we think about, like, the July earnings, I guess, July earnings call. NII may be a bit worse than expected, expenses a bit worse than expected, SCB higher than expected.
You know, did that kind of impact at all, kind of your timing or how you think about kind of the ultimate kind of ROTCE at 15%? And, you know, we talked about the biggest opportunities and constraints for that objective.
Yeah, well, just keep in mind, NII was actually what we expected.
Yeah
Y ou may have had a different expectation, but it was sort of what we expected.
Yeah.
S o I think it was right in that range of expectations. But look, I think, when we started this conversation back in, you know, the Q4 of 2020 , we were in single digits, our ROTCE. We've made a significant amount of progress since then, you know, through the combination of things we've been doing in terms of capital efficiency. You know, you're seeing revenue, you know, come through. Obviously, NII has helped as well. And as we look forward from here, as we said in January, we still very much are confident in our ability to get to 15.
You know, I think as you look at the work we're doing in the credit card business and the returns that should generate, the work we're doing in our home lending business to kind of right-size that business, you know, those two things alone will be a significant contributor to the returns of the overall company. You start to see the benefits of the investments we're making across all the fee-generating businesses, the continued efficiency work, capital. So I think , you know, there's no, again, one thing that's going to drive us to sort of this sustainable 15% ROTCE, but we feel very confident in our ability to get there. And then we'll decide what the right target is from there.
Yeah, I guess that was. We can put up the next ARS question. So I guess that was kind of my next follow-through, is like 15%, you know, the audience seems to think 2026, 2027 type timeframe. We'll see.
But ultimately, I think you're misreading that
2025 .
Yeah. I mean, I don't know, but I don't know if you...
Unfortunately, people on the phone can't see the slide, I don't think, but anyway.
What was your interpretation?
Can we go back?
- I mean, I was just reading the, what the answer, but, it looks like half the people think next year and half the people think the year after that, I guess, right?
Also, maybe a little different or this is returns. Right.
I think.
Yeah.
We can go forward.
But just ultimately, what? I mean, do you think this company is capable of?
Well, look, I think as we've said over the last, you know, number of years, like, there's no reason why any of our businesses shouldn't have best-in-class returns across each of the operating segments. And so everybody, reasonable people can have, you know, differences in exactly what that means, but that's likely higher than 15 over time. But we have to get to a place where we've got sustainable, you know, returns at that level, and then we'll just, you know, w e'll figure out what the right target is over a longer period of time, but there's no reason why our businesses shouldn't have best-in-class returns by segment.
And so you can normalize, you know, across the peer set and come up with your own estimate for that. But that's the way we've thought about it.
A lot of opportunity. With that, please join me in thanking Mike for his time today.